How are Canadian pension funds changing their investment strategy?

New research shows changing attitudes toward external managers and plans to alter asset mixes

How are Canadian pension funds changing their investment strategy?

Following the pandemic-induced disruption that shook markets and portfolios last year, Canadian pension funds are making changes to their investment management strategies, according to a new report published by CIBC Mellon.

In its first instalment of research on leading Canadian pension funds, which draws from a survey including 50 participants, CIBC Mellon found pension funds are preparing to increase the share of their assets and investment activities managed in-house from 22% to 28%. When asked what asset classes they planned to increase in-house management for over the next 12 to 24 months, the largest number of pension funds cited real estate (58%) and equities (48%).

“Many Canadian pension funds take a nuanced approach to asset management. Where appropriate, they operate with in-house teams and this appears to be increasing,” said Alistair Almeida, Segment Lead Asset Owners at CIBC Mellon. “Elsewhere, they are pursuing partnerships and collaborations, as well as full-scale outsourcing arrangements. There is no one-size-fits-all arrangement.”

Alongside the rising focus on in-house management, plan sponsors are also showing increased judiciousness with respect to selection of, allocations to, and oversight on external managers.

“As the Canadian investment industry works through the market turbulence, early indications are that investors may see this as an inflection point to secure increased transparency,” said Ash Tahbazian, Chief Client Officer, CIBC Mellon. “From gathering information to assist in various risk and performance scenarios, to launching separately-managed accounts with trusted asset managers, initial feedback is that investors are keen to further the gains they have made in enhancing control in recent years.”

The report also shed light on pension funds’ plans to revisit the asset mix of their portfolios. In the next 12 to 24 months, 86% said they expect to pare back their exposure to infrastructure. Over the next year, 90% said they plan to raise allocations to private equity, while 42% are looking to raise their real-estate exposures.

A large majority (86%) foresee that they’ll invest more in fixed-income assets in the short term. But there’s still a measure of risk-taking afoot, as 36% said they plan to allocate more toward equities – nearly twice as many as those intending to trim allocations – while 20% are anticipating that they’ll reduce their cash holdings.

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